(Bloomberg) The U.S. poverty rate rose to the highest level in 15 years in 2009, government data show, underscoring the toll the recession took on household incomes and adding fuel to an election-year debate over the Obama administration's economic policies.
The poverty rate climbed to 14.3 percent from 13.2 percent, and the number of people classified as poor rose to 43.6 million, the largest number in the 51 years for which the figures have been published, according to a Census Bureau report released today. The median household income fell to $49,777 from $50,112 in 2008, a change the government said isn't statistically significant.
"The poverty rate is bad, and is going to get worse and remain high the rest of the decade," said Isabel Sawhill, a senior fellow at the Brookings Institution in Washington, a policy research group. She forecasts the rate will rise to 16 percent by mid-decade. "We really should be strengthening the safety net programs, not just because people need help but also it will maintain purchasing power among a large group of people."
Today's report comes as Congress debates the effectiveness of more spending to reduce unemployment. President Barack Obama last week urged approval of a package of $180 billion in business tax breaks and infrastructure spending to boost the economy, a proposed supplement to the $814 billion stimulus measure enacted last year.
Debate Over Taxes
Obama also wants to extend Bush-era tax cuts for individuals who make less than $200,000 a year and couples earning less than $250,000 while repealing them for those who earn more. Republicans want to extend cuts for all taxpayers.
While unemployment has dropped to 9.6 percent from 10.1 percent last October, sluggish private job creation following the loss of 8.4 million jobs has weighed on incomes and consumer spending, slowing the pace of recovery.
"High levels of poverty reflect the large increase in unemployment and underemployment of the workforce," said Heather Boushey, a senior economist at the Center for American Progress, a research organization headed by John Podesta, who managed Obama's transition team after he was elected in 2008. "We are stuck in a negative spiral where high unemployment leads to a lack of demand."
The 1.1 percentage point increase in the poverty rate was the biggest increase since 1980, Census Bureau officials said on a conference call with reporters. The number of poor increased from 39.8 million in 2008. The poverty threshold in 2009 was defined as $21,954 in income for a family of four.
Among U.S. regions, real median income declined between 2008 and 2009 in the Midwest and West, while the changes for the Northeast and South weren't statistically significant. The poverty rate isn't statistically different from 2008 for Asians, but increased for all other race groups and Hispanics.
Payrolls have increased 723,000 in the eight months through August, showing it will take years to recoup the 8.4 million jobs lost during the recession that began in December 2007. Unemployment, which reached a 26-year high of 10.1 percent in October, will average more than 9 percent through 2011, according to a survey of economists by Bloomberg News this month.
The rise in poverty is putting a strain on social services and charities.
Demand at food banks rose 46 percent between 2006 and 2010, according to Feeding America, a network of U.S. food banks. "There has been a stunning, catastrophic increase in demand," said Ross Fraser, spokesman for the Chicago-based group.
Wal-Mart Stores Inc., the world's largest retailer, is finding its U.S. customers more "challenged" in making purchases, with some waiting to buy baby formula until paychecks or assistance checks are issued, William Simon, president and chief operating officer for its U.S. operations, said at an investment conference this week.
"Unemployment we all know remains mid-9s and doesn't appear to be going anywhere quickly," he said, noting "an ever-increasing amount of transactions being paid for with government assistance."
"The average American remains gripped by financial distress," said Mark Cole, chief operating officer for Atlanta- based CredAbility, which provides nonprofit credit counseling. "Everything has slipped a notch across the board. Middle class are slipping to lower middle class, and the lower middle class are slipping into poverty."
An index of consumers' financial distress that includes credit, housing, and employment put together by CredAbility reached a low in the fourth quarter of 2009. States whose consumers are in the most financial distress included Nevada, Mississippi, Florida, Michigan and South Carolina, according to the group's second quarter 2010 index.
The number of people without health insurance coverage rose from 46.3 million in 2008 to 50.7 million in 2009, while the percentage increased from 15.4 percent to 16.7 percent over the same period. In March, Obama signed into law a sweeping rewrite of U.S. health-care policy that ensures millions more will be covered.
During the economic expansion of the 1990s, the poverty rate declined each year from 15.1 percent in 1993 to 11.3 percent in 2000, according to previously published data. It then climbed to 11.7 percent in 2001, as the nation slid into recession, and continued its ascent to 12.7 percent in 2004.